Fossil fuel subsidies stand out as some of the most harmful policies hindering our efforts to tackle climate change.
At the climate talks currently underway in Bonn, countries have a real opportunity to turn their pledges to phase out fossil fuel subsidies into reality and halt the rising public support for coal, oil, and gas.
By Chido Muzondo, Policy Advisor, IISD
At the UN Climate Change Conference in Bonn, Germany, countries must pave the way to more ambitious climate commitments at COP 28 in Dubai, United Arab Emirates (UAE), later this year. This includes paying more than just lip service to the existing pledges – made in the Paris Agreement Article 2.c.1 and in the Glasgow Statement – to stop subsidizing fossil fuels.
This decade is decisive in our fight against global warming, and time is limited to align our actions with the measures needed to avoid the worst effects of climate change. Fossil fuel subsidies stand out as some of the most harmful policies hindering our efforts to tackle climate change. At the climate talks currently underway in Bonn, countries have a real opportunity to turn their pledges to phase out fossil fuel subsidies into reality and halt the rising public support for coal, oil, and gas.
That is because at the UN Climate Change Conference in Bonn, and later at COP 28 in Dubai, the UN will be assessing for the first time – through a process called the Global Stocktake – how far the world has really come in its fight against climate change, and, more importantly, determining ways to take transformative actions to reduce greenhouse gas (GHG) emissions.
The state of play on global fossil fuel subsidies
So far, the indicators aren’t good. An assessment by the International Institute for Sustainable Development (IISD) and partners shows that since 2010, countries have failed to redirect public financial flows from fossil fuels to clean energy, as called for in the Paris Agreement on climate change. The Fossil Fuel Subsidy Tracker data shows that governments allocated on average USD 643 billion per year for fossil fuels between 2010 and 2021.
Things got even worse with the energy security crisis brought about by Russia’s invasion of Ukraine, which caused fossil fuel prices to spike, leading to higher subsidies. In 2022, fossil fuel consumption subsidies hit a staggering USD 1.1 trillion, according to an International Energy Agency (IEA) estimate – and that figure only covers 52 countries and excludes subsidies for fossil fuel production. In contrast, countries spent only USD 167 billion to support clean energy development in 2017, according to the International Renewable Energy Agency (IRENA). Paradoxically, as IEA’s Fatih Birol points out, although the best guarantee of energy security is a “massive investment in clean energy,” governments keep subsidizing oil, gas, and coal that make them vulnerable to price shocks.
Fueling the climate crisis
Fossil fuel subsidies are, in fact, causing irreparable long-term damage. They lock the world in fossil fuel dependency and slow down clean energy transition by creating an economic environment that is making coal, oil, and gas artificially competitive with cheaper renewable energy sources. They also create false market signals that encourage continued investment in fossil instead of clean energy. This, in turn, encourages the production and consumption of fossil fuels, causing more GHG emissions, accelerating global warming and contributing to human health problems, loss of biodiversity, and environmental pollution.
What’s more, fossil fuel subsidies often benefit the wealthiest – who consume more energy – much more than low-income households. Subsidies are also burdensome on public resources, which could otherwise be used to support the most vulnerable in areas such as healthcare and education.
How governments can make progress
Reforming fossil fuel subsidies and shifting public financial flows from fossil fuels to clean energy is fundamental to accelerate the transition to climate-compatible economies and reduce GHG emissions. How can governments make this happen?
The first step is to improve the transparency of public spending and adhere to reporting requirements on fossil fuel subsidies under SDG indicator 12.1.c.
Second, countries must strengthen the global commitments on shifting public spending from fossil fuels to clean energy, particularly by setting clear timelines to phase out fossil fuel subsidies and adopting stricter definitions for terms such as “inefficient fossil fuel subsidies” that create uncertainty about which subsidies are in need of reform.
Third, governments must commit to withdrawing all public support from fossil fuels, including support through state-owned enterprises and international and domestic public financial institutions. This should be done in a managed and socially responsible way, with a focus on clean energy transition and the commitments included in the next generation of Nationally Determined Contributions (NDCs).
Fourth, good planning at the national level is crucial. That includes appropriate pricing for fossil fuels based on market trends, managing potential social and economic impacts of such reform, and using the revenue to support social protection.
Fifth, governments should allocate part of subsidy savings to enhance social protection and support for clean energy to better serve their citizens during the energy and living-cost crises.
Finally, to counteract resistance to fossil fuel subsidy reform, including politics rooted in vested interests, it is critical to build public support to ensure reforms are successful. This involves implementing robust, evidence-based communications before, during, and after implementation.
At the UN Climate Change Conference in Bonn and later at COP 28 in Dubai, governments must acknowledge the scientific evidence on the harmful effects of fossil fuels on the global climate. It’s imperative that countries work together to make ambitious commitments on phasing out fossil fuel subsidies and redirecting public funds toward clean energy to accelerate climate action and energy transition over decade.